What are the advantages of stock repurchases versus paying dividends? What is the impact of a stock split on the value of a corporation? Why do companies do stock splits?

If you were evaluating an investment opportunity, which technique would you use and why?

  1. When evaluating investments, you can get data from engineering, marketing and sometimes accounting. Do you think any of these organizations have internal biases? If so, as a member of the finance department, how would you deal with them?
  2. You have just discovered that your boss favors payback in evaluating investments. Should you try to talk him out of it or should you go along with his/her desires?
  3. Last year your company financed its investments by selling shares of common stock. This year the plan is to use debt. The after tax cost of debt is 5%, the cost of equity is 12% and the weighted average cost of capital is 9.5%. The first investment for this year is an expansion project. What cost of capital will you use and why?
  4. The weighted average cost of capital can consist of debt, preferred stock and equity. Which of these sources is the most expensive and the least expensive and why?
  5. Young companies usually finance their assets with equity. Why?

Make original posts discussing any three of the following statements. Reference chapters 14,15,17. Total of 300 words to answer all 3 questions.

  1. Explain how the use of leverage can increase shareholder’s wealth.
  2. Leverage can also impact you in your personal life. Explain how you can use it to your advantage.
  3. In theory, what happens to the shareholder’s worth before and after he/she receives a dividend from the company.
  4. What are the advantages of stock repurchases versus paying dividends?
  5. What is the impact of a stock split on the value of a corporation? Why do companies do stock splits?
  6. What is the difference between a stock dividend and a stock split?
  7. If a company is highly leveraged from an operating standpoint is it more likely or less likely to use financial leverage? Why or why not?

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